Don't Tell Your Kids


Most parents have difficulty deciding how much of the “bad stuff” (war, death, etc.) they should tell their kids about, or when they’re old enough to hear it.

New research from Ulrike Malmendier of the University of California and Stefan Nagel of Stanford identifies another kid-sensitive subject parents might want to avoid for a while: the financial crisis.

According to this Economist article on their research, Nagel and Malmendier found that “people’s eventual appetite for risk is affected by the economic environment during their childhood, well before financial matters could possibly have been of interest.”

In short, what you tell your kids about the current financial crisis — or what they discover on their own — could affect what financial choices they make throughout their lives.

But grown-ups aren’t immune either. The study found, for instance, that “people who had experienced lower stock-market returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better,” reports the Economist.

And so, to readers of this blog with children: have you discussed the financial crisis with them, and if so, how did they respond?

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  1. Laura B says:

    I would imagine that it isn’t hearing about the financial crisis that makes children eventually less risky with their money, but seeing the actions their parents take in response to it. If you grow up in a household where your money is tight, your parents are constantly saving, not taking risks, you will be much more likely to grow up with a frugal mind set because of observations you made, not because of any understanding of financial crisis.

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  2. Elana says:

    I don’t see how not talking to them will help at all. They’re more likely to hear rumors at school. You’re better off discussing what’s going on and how it is or is not affecting your life (in simplistic terms). It’ll also help them understand why they might not get everything they’re asking for either.

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  3. aldabra says:

    Surely I *should* be telling her about the financial crisis, specifically to inoculate her against taking the kinds of risks that leave you upside down in financial crises?

    That’s what I’m doing, anyway.

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  4. Brian says:

    @Laura B agreed. actions speak louder than words–which appears to be how The Economist has read their work (and probably how it actually was intended)

    Also, it could have to do with people being bad at estimating just how bad it could get. People who have been in those situations are probably more likely assign a more negative value to the negative outcomes of outlier events (e.g., Great Depression, etc). Whether they would overestimate or underestimate is hard to know.

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  5. Ellie says:

    I grew up in a household where my parents thought if we were old enough to ask the question then we were old enough to know (at least part of) the answer.

    I would now take the attitude with my kids that its better to tell them a bit now, as if we do get into a worse position/one of us looses our job, then it will suddenly get worse and they will have to be told so its better to get the information gradually as the questions occur to them rather than in one huge life altering dollopwhen its too late for a gradualy mental process to occur.

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  6. Sap says:

    What is the definition of “kid”? My ex-wife who is now 48 y.o. never has been old enough to hear bad news. Financial or otherwise.

    Consequently, she has no concept of risk or the Econ 101 concept of “scarce resources”. She trusts everyone and fears no consequences. She also spends money like it grows on trees. Hence, I’m still broke.

    Not that I want to traumatize my children, but I do want them prepared to be adults.

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  7. Cathy says:

    I find this somewhat interesting…I was raised by a single mother, and while she would never share financial details with us, it was obvious that we didn’t have a lot of money. There were a lot of things I was told we couldn’t afford, debt collectors would call, etc. and it was apparent she was very stressed about our financial situation.

    I’ve turned into a financially conservative adult, in the sense that I don’t spend freely and place a big emphasis on having an emergency fund and carrying as little consumer debt as possible. I’m one of those money=security types, although I do have an aggressive portfolio because I’m young and far away from retirement.

    But yet my brother, who is less than 2 years older than me, who grew up in the exact same household, is horrible with his finances and is constantly spending more than he makes. He might also have a high-risk portfolio, but I don’t think he has much of one to begin with.

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  8. Walter Wimberly says:

    I think that you have to inform them, at what they can understand. It helps to explain if mommy or daddy doesn’t have a job, that is why they can’t go out to eat…kids know more than we give them credit for.

    But I also agree that what we grow up with tends to shape our behaviors. My wife and I both were first children, who’s parents didn’t have a lot while we were young. We saw how they worked and improved their life style with hard work and determination.

    We took our experiences, and learned from them to be wise with our spending, knowing we can live without the latest and greatest. This has led us to both be careful with our money, and in turn, we have a low debt to income ratio and are better prepared to weather this economic storm because we don’t have creditors calling us, and we do have savings to live off if necessary. I’ve seen others who were born later, and “expect” the nicer things in life because that is all they remember growing up with…they are some of the ones hurting right now.

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  9. MD says:

    The new stimulus plan is set at $800 billion. Now there are little over 300 billion people in the USA (that’s including everybody who does or doesn’t pay taxes). So if we divide the stimulus plan evenly among ourselves, that comes to a little under $2700 each. Why trickle down, why not trickle up?

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  10. Sam says:

    Given the current situation worldwide (I live in Mexico City), I think my family is lucky because both my wife and me still have our jobs and haven’t been serioulsy affected by the financial crisis. However, we believe in what they say: Expect the best and prepare for the worst.

    In this scenario, we have reduced some expenses in order to increase our savings. This includes the occasional hot wheels car (or similar toys) my wife bought for our 6 y/o son, almost everytime he went with her to do the weekly grocery shopping at Wal Mart.

    By doing so, we have explained our son that it is good to save money and be prepared for tougher times. I think we’ve done a good job at making him understand, at his intellectual level, and doing so without making him worry excesively and assuring him that he will always have his basic necessities covered.

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  11. Sam X Renick says:

    Kids are a lot smarter than adults generally give them credit for. It seems to me parents might want to be proactive on this one and shape the discussion, naturally as appropriate.

    Sam X Renick

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  12. BSK says:

    So much of this depends on the age of the child. There are developmental milestones that must be reached in order to understand and fully comprehend different types of information in a way that is meaningful. The approach, if there is one at all, must be geared towards the age of the child. Generally speaking, parents and caregivers who are thoughtful and deliberate in their approach to such topics are most likely thought and deliberate in their approach to raising their child, increasing the likelihood that the child will grow up to make informed, responsible decisions. And, as someone pointed out earlier, conversations such as these are generally part of a larger context. Words only go so far with children; if the surrounding environment doesn’t support what they are hearing, the are unlikely to internalize the messages being communicated verbally.

    I say this as a teacher of young children who has had to lead many difficult conversations surrounding death, poverty, and racism.

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  13. Justin James says:

    The last thing I want is for my children to make the same kinds of mistakes that led to this crisis. Having financially risk adverse children is a *good* thing. Do you not warn your child about the dangers of climbing trees, in the hopes that we can raise a generation of acrobats? Didn’t think so. Maybe if the current generation of financial “experts” remembered the Great Depression we wouldn’t have this mess.


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  14. Lise says:

    We don’t necessarily talk about it, but my kids can’t help but be affected. Many of their friends’ parents have lost their jobs, and that comes up even in third grade. My younger daughter’s father hasn’t worked steadily in years, and she is used to the fact that Daddy can’t afford things like going to McDonalds or buying a new coat every winter, but Mommy can.

    My current husband and I are both still working and both are financially conservative (don’t carry a lot of debt, put aside a lot for our future), so my kids have always had the lessons of being financially responsible and not spending when you don’t need to. I don’t see any reason to scare them unnecessarily.

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  15. econobiker says:

    I try and educate my sons (age 4 and 8) to save the majority of their money though they have money to spend and give to a church. (75% savings, 15% spending, 10% church.)

    I have told them that some people also made mistakes in spending money that those people received and how some banks had people who made mistakes in figuring out that the people could have money for a house.

    When I caught the two boys singing a catchy jingle from a TV commercial for an automotive title loan business, I instructed them that the place rips people off by giving a person less money than his/her car is worth and then the business will steal the car back if the person doesn’t pay in time. I also have explained the concept by using the analogie of the sons loaning their toys to a friend for money and then taking the toy back if the friend didn’t pay back the money.

    And number 6 Sap: I had the mother of my sons (now ex-wife) commit financial infidelity on me several times and always write it off as “simple financial mistakes.”. I would reckon that your spouse has the same kind of spending addiction. You should treat it as an illness much like alcoholism or drug addiction and get your spouse counselling for dealing with it so she can get real with life. Otherwise she could flounder if her support network goes away/dies.

    I think that my former spouse is now finally realizing that she cannot blame me for HER spending problems anymore. I let her father be the co-dependant now…good ridance.

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  16. E Olson says:

    Is this on par with saying the first actor you see play James Bond feels like the “real” James Bond to you?

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  17. Erik Britt-Webb says:

    I think it’s absolutely essential to share “bit sized pieces” of the current financial crisis with your children. My wife and I have done so with ours, ages 6 & 8. This includes: discussing how we had to cut back while I was unemployed, how many other families are having to do the same, and how even now that I am re-employed, we have to be very careful and payback what we borrowed.

    We have continued to pay our kids a daily allowance, via, and they have invested more of that into their INGDirect savings accounts than they have used to buy toys. They really get a kick out of seeing how much allowance we owe them and how much they have in their savings accounts.

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  18. Kimota94 says:

    I learned more from watching my mother struggle to make ends meet when I was a kid than I could ever have learned from anything she could have told me on the subject (given that she was caught in the middle of it and hardly likely to have much perspective on it at the time, anyway). But it was also a different world back then (40 years ago).

    I think my wife and I raised our daughter (now grown) to understand that saving and living within your means are important, even though we both made a good living in those days… and we did it through both action (practicing what we were preaching) and words (reinforcing those principles with stories from our childhoods, when money wasn’t so readily-available). She’s in her early-20s now, living on her own, and using a budget to manage her money (including saving for retirement as well as for vacations, and never putting anything on credit that she doesn’t have the money for in the bank).

    If we come out of this financial crisis with a greater percentage of the population living within their means from now on, then it’ll all have been worth it in the long run. I certainly won’t be holding my breath for that outcome, though…

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  19. brianmc says:

    leaving aside the real topic, i’d like to discuss the reaction: people seem to think that being financially conservative means saving money. my interpretation would be that one who is financially liberal/aggressive (i’m not sure why they would say aggressive as the opposite, but if you look at a model portfolio, it’s always compared that way).

    one can save lots of money and still have aggressive investments. i intend to tell my children that your time horizon, risk tolerance, and current financial situation should dictate your investments. as a result (i’m 24) my retirement is most aggressive, my long-term savings are balanced, and my short term needs are FDIC. overall, this is a balanced portfolio, but that’s only when you consider all the holdings as if they’re equally weighted.

    the main point should be that risk aversion is not the same as thrift.

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  20. DaveJ says:

    My eldest is still probably too young to understand much about the crisis and since it’s not affecting us in any meaningful way, there probably isn’t any point in trying to discuss it.

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  21. Maria T says:

    I heard a scenario where two 7 year old boys were talking, and one said he was worried about the fighting on the news because he was scared that the fighting would come to his country. The other said he wasn’t scared if the fighting came because he has a sword! (Probably a toy one, I would hope!).
    I think this demonstrated how some kids worry about things a lot more than others of their age. With the current financial crisis, I would want to reassure the worrying kid that things aren’t so bad as he might hear, while I think the other should be told what’s going on to help him understand the adult world.

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  22. Kel says:

    @9: 300 *billion* people in the US? Wow, that would explain the long lines at the grocery store…

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  23. Cory says:

    Go read an original Mother Goose tail. Now try to come back and say that kids can’t handle news about a financial crisis with a straight face.

    Besides – talking to kids about money at a young age is the only way that they will learn. It’s too bad that the parents of people who thought that the housing prices would grow at 10%+ per year for the rest of time didn’t talk to their kids about financial issues, otherwise we may not have been in this mess.

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  24. anne says:

    Hmm. I just barked at a dawdling child this morning that we needed to get out the door so mommy could go to work because if I didn’t work, we wouldn’t have our house, the car or food — so get moving!! (She’s 10 so this shouldn’t be news to her) Will she grow up to be a conservative spender or a profligate?

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  25. Celeste says:

    This idea of teaching your children to be savers and not spenders is great, and I agree it’s a lesson that needs to be taught. However, how many kids are actually interested in hearing about the world-wide financial issues (or world issues for that matter)? Based off my childhood experience and those of my friends, I would say not many. A conversation about the world financial crisis would have bored me to tears. Most kids would much rather be playing on their Nintendo Wii rather than talk about how the world’s banks are failing.

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  26. katieb says:

    There’s actually quite a bit of research in human factors (psychology or industrial engineering depending on your alma mater) dealing with man’s ability to assess risk, specifically how humans model risk. It’s well known we put a lot of weigh on personal experience regardless of having access to actual numbers. A doctor who has come across a rare disease is more likely to consider it in another patient even if that disease’s symptoms are the same as a far more common disease. I know the daughter of a fire fighter whose personal assessment of the chance a potentially risky behavior will lead to a fire is skewed to the point that she acts as if it’s more likely that that behavior will cause a fire than not (not that being cautious is bad). The opposite is true too- thus the phrase “I never thought it would happen to me” used on so many public service announcements.

    One of the key factors here is that while exposure definitely effects our perception of risk, personal experience has a much larger influence on perceived risk levels than anything you can tell someone. That doesn’t mean you shouldn’t be careful about what you tell you kids, but chances are how they, their family, and their friends’ lifestyles are actually affected by the change will probably have a much larger effect.

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  27. sarah K. says:

    We have three kids ages 6,6 and 9 and we have discussed the financial crisis extensively with them. The tool that has worked the best, surprisingly, is the American girl doll named “Kit,” who my daughter owns and loves. Because all our children have seen the recent movie based on the book about Kit they know about the Great Depression and they know what a foreclosure is. It may be Hollywood’s version, but they’ve learned from it. They understand that our nation is currently in a recession, and although we are personally fortunate to not be facing job losses or foreclosure right now, our kids know that other families are. I think they have some understanding of how lucky they are, and we’re hopeful that this sticks with them into and through adulthood, and that their financial habits will be guided by it.

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  28. Tony says:

    “The study found, for instance, that “people who had experienced lower stock-market returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better,” reports the Economist.”

    And in other news, people who had been crippled in car accidents were less likely to own cars.

    Was that report sponsored by the Department of the Bleeding Obvious and No Brainer U?

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  29. Lizette says:

    I was a kid who understood economics. Don’t underestimate your kids!

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